The latest growth figures across Europe prove that the push for austerity has been a dismal failure. In Britain it may take years to recover from the double dip recession. The alternative push for stimulus spending, however, has to go beyond mere investment. While infrastructure projects are important for employment in the short run, they do not provide the vision for change needed to transform European economies so they can face future technological, environmental and economic challenges. Indeed, the countries that are growing at double digit rates are not only spending, but also have ambitious visions for the direction of public investment.

In the last decade and a half China, which has grown at an annual average of 10%, has increased its spending on research and development by 170%. Its five-year plan (2011-15) aims to invest $1.5tn (5% of GDP) in strategic new, mainly "green", industries: energy-saving and environmentally friendly technologies, biotechnology, advanced manufacturing, and alternative-fuel cars. It cannot be argued anymore that its growth path is based on low wages and imitation; it is becoming an innovation leader, and wages are rising as a result.

Similarly Brazil, which grew by 7.5% in 2010, recently announced a fiscal stimulus package of $66bn, aimed at modernising its infrastructure. But Brazil fully understands that infrastructure is not enough, and its active innovation policy – led by its state investment bank, BNDES – is rendering it an international leader in renewable energy and biotechnology. It spent over $5.3bn on clean technology between 2010-2011, and in biotechnology it has focused on the risky "death valley" phase (between having the concept, and full testing and approval) in which many firms fail due to lack of private finance.

Indeed, across the world state investment banks are focusing on innovation. In China, investments by the China Development Bank (CDB) are the main source of its success in solar power. Chinese solar manufacturers have become large international players, able to slash the cost of solar photovoltaic panels so quickly that some believe this access to credit is the reason behind the bankruptcies of solar companies in the US and Europe.

In the west, when government investments have strategic direction, there is immediate worry about the public sector's inability to pick winners. In Britain there has been talk of setting up an investment bank out of the ashes of RBS to direct spending on infrastructure. But an investment bank is needed not simply to invest, but to do so in areas that the private sector is not willing to go. This requires making choices. And many, even on the left, are worried that a "public" bank will be less able to make those choices than a private one.

The real problem is not private versus public decisions. The more you talk down the state's ability to be a productive, active agent in the economy, the less bold it is, the less it is capable of attracting the brightest minds, who prefer to work in lucrative parts of the private sector. The large poster that welcomes visitors to the Department of Business, Innovation and Skills office in London exudes the state's irrelevance: "Great Britain: low corporation tax and less regulation". Yet investment remains low. When instead there is vision and excitement in the public sector, jobs there are filled by top minds – and business responds. Indeed, the computer revolution was led by a US public agency, Darpa, which managed to attract some of the country's best scientific minds – and invented the internet in the process.

The excitement around BNDES in Brazil, and its confident and visionary role in planning for strategic new industries, has allowed it to attract top financial economists, and it is run by two international experts in the economics of innovation. Its bold risk-taking has allowed it to make record profits in productive, rather than purely speculative, investments. In 2010 its return on equity was an astounding 21% (reinvested by the treasury in areas like health and education), while that of the World Bank's equivalent organisation – the International Bank for Reconstruction and Development – was -2% (that of the CDB was 9%).

In Europe, the equivalent institution would be the European Investment Bank. Indeed, immediately after the crisis the EIB undertook an initial bout of counter-cyclical lending. It increased approved loans from €890m in 2007 to €4.2bn in 2009. This declined dramatically by 2011 to €703m, mainly due to worries about the bank's AAA credit rating, as well as lack of consensus between European Union countries on how active the EIB should be. And, as has been recently argued by the Greek economist Yanis Varoufakis, what the EIB gives with one hand (for example, financing for Greek small and medium-sized businesses), the European Central Bank takes with the other. In the end, it is more fear of the rating agencies and a lack of solidarity between countries that dictates growth policy in Europe.

Of course, we need both general stimulus spending – in areas such as healthcare, education and infrastructure – and directed investment in strategic new technologies and sectors. But the global economic race will be won mainly on the latter, and the winners will earn more profits for welfare programmes. Indeed, as has been shown in research by the National Institute of Standards and Technology, the investment multiplier is higher when public investment is directed to growth areas rather than just "digging ditches" and filling them up again. But direction requires vision, courage, and solidarity – all casualties of the latest European crisis.